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On Baseball Prospectus: Why a Cap in MLB Isn’t Needed PDF Print E-mail
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Written by Maury Brown   
Saturday, 10 January 2009 22:00

 

Baseball Prospectus

 With the Yankees spending like, well… the Yankees this off-season, there has been a chorus of “we need a cap” conversations from fans and owners alike. Whether it has been Brewers owner Mark Attanasio, or Astros owner Drayton McLane, or Pirates President Frank Coonelly, the small-to-mid-market franchises see the Yankees spending exorbitantly on free agents as unfair. Of course, the Yankees see it a different way.

But, beyond the posturing and the bluster are the numbers, which if you look at them, support the open system in MLB that exists today (see Does MLB Need a Salary Cap? The Numbers Say Otherwise).

One of the author/analysts I am really high on these days in Shawn Hoffman of Squawking Baseball, a site dedicated to the business of baseball. So, I was pleased to see that yesterday Shawn got a guest article on Baseball Prospectus going over, you guessed it, whether MLB needs a salary cap (see Let Freedom Ring: Busting the Myth of the Salary CapNo Subscription Required). As Shawn says in his lead-in, “Small-market teams love salary caps. Or rather, they think they do.”

Hoffman then details how the leagues that do employ salary caps have far different means by which centralized revenues have influence, and as of late have added inherent issues, something that MLB has lacked in its near wholly capitalistic state (there is, after all, a soft cap in MLB. It’s called the Luxury Tax).

I have touched on these topics in separate mediums, with MLB being covered here on The Biz of Baseball, the NFL in the 2007 Football Prospectus, and in an interview with Matthew Counts of the National Post regarding the state of the NHL’s struggling franchises, with the focus being on the Nashville Predators and their possible relocation through efforts by Jim Balsillie’s third attempt at getting into the NHL ownership game (see NHL’s future lies in Canada, reports say).

But, it is Hoffman that has rolled it all into one neat package in his BP article.

As Hoffman delved into the numbers, there was one curious section which details what a cap (and a salary floor) might look like in MLB. As Hoffman writes:

Let's say, in some far-off universe, MLB owners and players actually did agree on a salary cap. With it would come the normal provisions: a salary floor at around 75-85 percent of the cap, and a guaranteed percentage of total industry revenues for the players. Since the players have been taking in about 45 percent of revenues the past few years, we'll keep it at that figure (the other three major sports leagues, which are all capped, each pay out over 50 percent).

Using 2008 as an example, the thirty teams took in about $6 billion (not including MLB Advanced Media revenue), for an average of $200 million per team. Forty-five percent of that (the players' share) is $90 million, which we'll use as the midpoint between our floor and cap. If we want to make the floor 75 percent of the cap (a low-end figure, relative to the other leagues), we can use $77 million and $103 million, respectively.

Going back to Does MLB Need a Salary Cap? The Numbers Say Otherwise, according to Rob Manfred, MLB’s executive VP for labor relations, 52 percent of league revenues are dedicated to player payroll, by far the lowest of the Big-4 sports leagues in the U.S.

As Liz Mullen of the SportsBusiness Journal reports, “Under their respective collective-bargaining agreements, NHL players received 56.7 percent last season, NBA players about 57 percent and NFL players about 59 percent.”

So, how did Hoffman arrive at the 45 percent figure? Reached by email he, understandably, used data at hand, and at the moment, most still have the Opening Day payrolls at their disposal by way of USA Today, or the Lahman database. (End of Year player payroll figures have not yet been released, other than calculating them through the MLBPA’s report on average salary). The problem with them surrounds the fact that they do not include deferred payments and incentive clauses, and the team payrolls do not include money paid or received in trades or for players who have been released.

To help fill in some blanks and address some figures…

  • Reportedly, MLBAM’s revenues have been approx. $450 million annually.
  • League revenues were $6.4 billion, a new record for MLB. That would set average per club at $213,333,333, so the adjustment adds a tad more green to the mix.
  • In recent years, the total allocated to player payroll in MLB has been close to 60 percent.
  • Using 52 percent, as opposed to 45 percent for player payroll, and the adjusted average club revenue, comes to $96 million as the mid-point.

To close, none of this diminishes Hoffman’s article. Regardless of the adjustments, the premise of the article remains exceptionally sound: MLB does not need a salary cap. Adding in some adjusted figures simply allows for an expanded discussion by one of the up and coming sports business analysts out there.


Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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